In today’s challenging environment of rising supply constraints and soaring prices, the pressure is on procurement to find new ways to optimise costs and maximise value. There is a sense of urgency to this, as costs rise faster than revenue margins are compressed and profits suffer.
The complexity is heightened by the reality that numerous conventional methods, such as strategic sourcing, through which procurement functions attain savings and value are reaching their point of maximised utilisation and are failing to return additional value. Procurement teams need to think differently and innovatively to find opportunities. This is where a new breed of procurement technology that leverages advanced automation and Artificial Intelligence (AI) can drive the next wave of value creation demanded by CEOs and stakeholders.
Traditional approaches
From products and services to manufacturing and distribution, costs are rising at every step and across every industry. Compounding this are tighter consumer budgets, with customer loyalty declining in favour of finding a cheaper price – even for the highest profile, popular brands leading to a strong profit and affordability challenge falling on procurement functions.
In recent years, procurement functions have focused their cost optimisation efforts on the most obvious, big-impact opportunities. Many have implemented the latest cloud procurement platforms and have renegotiated with suppliers on price. The COVID-19 pandemic saw functions tighten supply chain logistics and scrutinise costs of local versus global resourcing.
However, with so many of these efforts now entrenched, and the environment tighter, procurement functions need to dig even deeper into their contracts, processes and supplier lists to unlock additional savings and value.
Point solutions
To reach the next level of cost optimisation and value, leveraging automation and AI-powered point solutions can help. Many of these tools can be implemented relatively quickly in comparison to larger procurement “suites” and can deliver results in weeks rather than in years. Point solutions also require less upfront investment than many traditional approaches, and typically don’t rely on extensive staff training or process changes to work shortening pay back periods and supporting tactical agendas whilst delivering on strategic priorities.
Finding hidden costs and value
The point solutions available to support procurement processes are many and varied.
The specific type of tool which would deliver most value will depend on the organisation, their technology stack and the challenges which they face. For organisations with large supplier bases and a challenge to deliver cost savings without increasing headcount, AI negotiation tools can reduce the time spent on managing thousands of contracts and individual supplier preferences. Not only do these tools enable 71% of the negotiation process to become fully automated, delivering value from suppliers in weeks rather than months, they also typically enable an average savings of >4%.
Another common challenge faced by organisations is poor understanding of current spend, difficulty combining complex disparate datasets, causing lack of confidence in their category strategies and therefore leadership don’t have assurance that they are maximising their leverage across the organisation. AI-powered spend analysis and data integration tools can help procurement teams see where money is going, leverage supporting datasets such as should-cost models, and help focus cost-optimisation efforts. Likewise, prescriptive analytics tools leverage current and historical data to not only predict future demand and risks but also to offer actionable recommendations for remedial measures. These tools can commonly categorise over 97% of spend, support delivery of up to 11% savings across direct and indirect categories and are particularly affective at targeting and consolidating the supplier tail. All these benefits are available in a matter of weeks from light, flexible and easily integrated solutions.
Similarly, contract analytics can highlight anomalies or cost-reduction opportunities. Large organisations can often have huge databases of contracts with existing suppliers, which are only ever reviewed when it is time to renegotiate. Cognitive contract management tools utilise AI to analyse both contracts and invoices to identify over payments, missed rebates and other obligations. This can deliver a reduction of between 2% and 5% in spend leakage, securing the value earned through tough negotiations and commercial ability.
Solutions are designed to mine vast amounts of data quickly and efficiently, highlight cost optimisation and value recovery opportunities, and help teams make informed decisions.
How we can help
At KPMG, we combine our deep experience of procurement processes with our understanding of the complex procurement technology market to help functions find the point solutions that will make the biggest difference.
The first step to leveraging the modern landscape of procurement technology is to understand the range of benefits which emerging technologies can deliver. This creates the art of the possible. The next step in starting your journey is the development of your overarching strategy and approach including the roadmap for your future technology implementation and integration. Following this, targeting is essential to understand which areas will have the greatest impact, either by addressing current issues or creating incremental value in a high-priority area. Once target areas are determined, the correct solutions need identification to provide the necessary capability to drive the intended value. There are several emerging challenges in this area, however KPMG can support and ensure that common pitfalls are avoided by assisting with:
- Navigating a Rapidly Evolving Tech Market. In an environment where the tech market is moving swiftly, some vendors may falter. We bring insights into industry leaders, ensuring you make informed decisions, leveraging our pre-existing market scanning and validation materials to accelerate solution identification and engagement.
- Ensuring Seamless Integration. It's crucial that the technology seamlessly fits together in an orchestrated landscape. The integration of point solutions into the wider procurement processes is an essential element of the transformation as without this integration adoption is likely to be poor, value will be eroded, and the overall effectiveness of the solution will be impacted. KPMG excels in making sure that all components align cohesively, minimising integration challenges. We utilise leading practice processes and transformation experience to support the transformation activity driven by the technology implementation and help manage the change to the people and processes which arise from any technology programme.
- Building a Robust Business Case. Crafting a clear business case can be challenging. We provide a wealth of comparators and benchmarks, leveraging our extensive knowledge base to support you in building a compelling business case that wins investment.
Getting this right can supercharge a procurement function to drive real competitive advantage and support strategic business goals. KPMG, with its proven process taxonomy, methodology, and transformation experience, can ensure solutions are embedded, and maximum value can be realised.
